Q4 2020 Allstate Corp Earnings Call

February 4, 2021

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Allstate fourth quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone and we'd like to ask you to limit yourself to one question and one follow up if.

<unk> as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Mark Nogle. Please go ahead Sir.

Thank you Jonathan Good morning, everyone and welcome to all States fourth quarter, 'twenty and 'twenty earnings Conference call. After prepared remarks, we will have a question and answer session.

Yesterday following the close of the market, we issued our news release and Investor supplement and posted today's presentation on their website and Allstate and Busters Dot com.

Our management team is here to provide perspective on these results.

As noted on the first slide of the presentation. Our discussion will contain non-GAAP measures for which there are reconciliations and the news release and Investor supplement and forward looking statements about allstate's operations Allstate.

Allstate's results may differ materially from these statements. So please refer to our 10-K for 2019 and other public documents for information on potential risks and now I'll turn it over to Tom.

Hi, Good morning, Dan Thank you for joining us.

Amidst the pandemic.

State and delivered really attractive returns, while building higher growth business models, and 'twenty and 'twenty excel.

Exceptional progress has made building higher growth business miles to execute our strategy of increasing market share and personal property liability and expanding protection offered to customers.

And as you know one of our key focuses this year was transitioning the personal property liability business to higher growth.

Took decisive action and despite the operational complexity and he's actually maintained Allstate brand property liability policies and force will take you through a reconciliation of the various components of it and you'll see the path to growth.

We made excellent progress and expanding protection operating customers with total policies in force increasing by 25% to nearly 176 nine.

We took advantage of the decline and auto.

You can see auto accident frequency and net cost reductions to improve our competitive price position and auto insurance, while maintaining attractive returns.

The acquisition of National General is expected to increase auto insurance market share by one percentage point in 'twenty and 'twenty, one and provides another platform for growth and expand its product for these changes position Allstate for sustainable long term growth and.

And the same time Allstate generated strong profitability and returns and 'twenty from net income was $2 $6 billion and the fourth quarter and adjusted net income was $1 $8 billion or 5087 cents per diluted share.

This was driven by lower frequency of auto accidents.

<unk> strong profitability and homeowners insurance and higher performance based investment income.

Net income was $5 $5 billion and adjusted net income was $4 6 billion for the year.

This represents a 19, 8% return on equity foreign excess and most insurance companies.

Our strategy to increase market share and personal property liability and why expanding protection services to customers will increase shareholder value higher property liability growth with attractive returns and rapidly growing protection services expand our total addressable market.

And this growth combined with our proactive capital deployment strategy supports returns and equity above the insurance industry and are comparable to the S&P 500.

Five three is there a touch based on their strategy operating price. So we're not going to spend time on that so let's move to slide four and discuss this strategy as it relates to the property liability business.

And transform and grow to become more than a plane, it's about creating a business model capabilities and culture that continually transform to deliver market share growth.

This is done by focusing and the customer any assets.

And improving value and.

Expanding access includes all the ways customers choose and interact exclusive agents directly to call centers and the web and independent agents.

The largest part of this change was transitioning our.

Boosts of agent and direct businesses the operating under the Allstate brand. This gave us the ability to lower cost leverage scale and increased advertising.

This transaction and successfully being implemented and we achieved key milestones in 'twenty and 'twenty.

We were pleased with new business growth from existing Allstate agents currently and key to serving our customers and growing.

Property liability business from existing agents met our goals, except for the pandemic slowdown in March and April workhorse, and nobody was buying anything is we shifted commission to new sales from retention.

We're testing new age and miles with less real estate and more efficient service enabled by technology with the goal of having strong local personal relationships with customers.

These models will also create learnings to enable existing agents to achieve higher growth.

As a result of that we did stop appointing new Allstate agents and in early 'twenty and 'twenty, while our higher growth and lower cost models being developed.

And a negative impact that points of presence and new business sales.

At the same time, we increased direct sales.

The net was that overall policies in force remained the same through the transition despite a drop and retention, which was concurrent with the ending of the special payment plans related to the pandemic, Glenn and I'll take you through that reconciliation and a couple of minutes.

The acquisition of National General and January also improves growth prospects and and as you know this is essentially a reverse merger and national General team is joining allstate and they're consolidating our independent agent businesses encompass and AI into their operational and technology platform.

And then we're going to be able to broaden national generous product portfolio, using Allstate standard auto and homeowner's insurance capabilities, which will create growth through independent agents.

We also made great progress and improving customer value last year from a customer value standpoint, we've maintained attractive margins through cost reductions while investing for growth.

This includes improving the competitive price position of auto insurance through targeted rate reductions and a direct pricing discounts and.

And while most of these changes and due to the lower frequency of auto accidents. We are also reducing costs to ensure we continue to generate attractive margins and we're also expanding our industry, leading telematics offerings and drive wise and myeloid to further improve our value proposition and improving price and specification. We're the only company that major company selling mile Wise, which is.

Very attractive customers today, because they're not driving as much.

Our goal is not just to execute this plan, but to continuously generate transformational growth, we have the brand and market position resources capabilities and strategy to deliver this for shareholders and extensive allstate agent platform delivers more value for a dollar to customers and competitors.

Direct business utilizing the Allstate brand competitive prices and broad product offerings and our insurance expertise.

And independent agent business, and national distribution, and strong position and both auto and homeowners insurance and.

And protection services with innovative business models, and expanding total addressable market.

We're well on our way to achieving this goal after putting the foundational elements into place last year.

Moving to slide four to discuss Allstate excellent financial performance in 'twenty and 'twenty.

Revenues of 12 billion and in the fourth quarter increased four 8% for the prior year quarter with total revenues for the year, reaching $44 8 billion, which is primarily driven by higher premiums earned and which was partially offset by lower net investment income.

Net income was $2 6 billion for the fourth quarter and $5 $5 billion for the for year 2020 and.

Adjusted net income was $1 8 billion of $5 87 per diluted share in the fourth quarter.

For the full year adjusted net income increased to $4 6 billion or $14 73 per diluted share, we had strong profitability and both auto and homeowners insurance.

Adjusted net income return on equity was 19, 8% over the last four months exceeding our range of 14% to 17%, which is near the top of the insurance industry.

Now I'll turn it over to Glenn to discuss the transition of the property liability businesses to higher growth.

Thanks, Tom Let's go to slide six we will discuss how allstate is increasing property liability market share while maintaining attractive returns.

And with a foundational work completed in 2020 Allstate is positioned to grow market share and 21, while developing a leading position and all three primary distribution channels and property and liability.

Some of the actions taken and 'twenty are impacted.

Both in the near term, but they were critical to advancing transformative growth and longer term.

Starting with Allstate exclusive agents, who serve customers that value local advice and relationships.

Focused on accelerating growth and improving efficiency.

Allstate agents continue to be a core strength of our organization.

For further strengthening that model by focusing on new business growth and lowering costs by improving marketing effectiveness centralized and customer services and enhancing customer connectivity.

Leveraging issuance as direct capabilities under the Allstate brand and we've created and Omnichannel experience that meets the customer where how and when they want to interact with us.

We completed the integration of direct processes and systems in 2020, and expect direct sold business to continue to accelerate.

As Tom mentioned National General's and other exciting growth platform for us I mean national General's independent agent facing technology, among the best and the industry and then our combined agency footprint covers a vast majority of the U S market.

So as we expand products from the National General platform, we're going to be and positioned to grow share and the IAA channel.

The totality of this go to market model with strong capabilities and each distribution channel is designed to generate higher growth.

Allstate is leading pricing and claims capabilities, including our strength and telematics puts us and our strong competitive position. We're also enhancing our price competitiveness, while maintaining attractive returns.

The impact of the pandemic and miles driven and lower costs for auto losses gave us an opportunity to improve auto affordability through targeted rate reductions. We've also lowered underwriting expenses as Tom mentioned Theyre down one nine points over the last two years, when excluding restructuring and <unk>.

Corona virus related expenses.

These efficiencies and continued cost structure reductions allow us to improve pricing relative to competitors, while generating excellent returns.

Allstate has a strong record of profitability across lines of business and and different market conditions. The average combined ratio and auto insurance over the last five years was 94, four and that excludes obviously 2020 results, which were influenced by the pandemic.

We are equally strong and homeowners, where we averaged a combined ratio of $89 five over the last five years and.

And that reflects the.

The higher cost of capital or the higher capital requirements, I should say and homeowners product versus auto.

The point is we expect to grow and we expect to earn really attractive returns and.

So let's go to slide seven and we're going to discuss National General.

The acquisition and a little more detail.

On January 4th Allstate close to $4 billion acquisition of National General we are incredibly excited about the opportunity ahead with national General and and how it advances our strategy to grow personal lines and it gives us an estimated increase of over one percentage point of total personal property liability market share.

Allstate is now a top five personal lines carrier in the IAA channel with significantly better competitive position.

We'll utilize national general as our independent agent platform by consolidating our encompass and Allstate Independent agency operations into the new entity, which will be branded national General and Allstate company.

We expect to growth by rolling out New standard auto and homeowner's insurance offerings. Starting later this year and completing countrywide deployment and less than two years.

Consistent with past acquisitions, we've developed measures of success and we're showing those and the bottom of this slide first.

We expect the acquisition to be accretive with growing earnings adding to returns and total profit.

We expect to achieve synergies by consolidating the three IAA channel businesses into one improving our competitive position third we will grow IAA channel policies in force by broadening the product offering to fully meet customer needs for auto home other personal lines and from non standard to middle market to mass affluent.

We will continue to provide updates on our success in this channel as we report a national General brand results and the first quarter.

Moving to slide eight let's delve deeper into how we strengthen allstate branded property liability distribution.

As we said before some of the actions we took in 2020 negatively impacted near term growth, while accelerating it and other areas.

We supported Allstate agents to increase new business growth and 2020 with the exception of March and April the beginning of the pandemic winter when things slowed down at the same time, we stopped appointing new Allstate agents, while higher growth and lower cost models are being developed and that had a negative impact on new business and as Tom mentioned earlier, we expect.

The new models are going to create learnings that enable our existing agents to achieve higher growth too.

The chart and the lower left breaks down Allstate personal auto new business applications compared to the prior year.

If you exclude the declines in March and April due to the pandemic Allstate brand new business increased with an improving trajectory throughout the year, the red bar and the far left of the chart shows the estimated unfavorable impact of the pandemic on new business in March and April moving to the right you can see the negative impact of stopping new agent appointments during 2020.

But that was partially offset by an increase and existing EBITDA production.

And that shows the viability of growth with those existing agents. When we just made a slight compensation change towards new business from renewal.

They just have a great opportunity to grow.

Moving to the center of the chart.

The total direct channel increased compared to prior year and this is the combined Allstate and insurance view and it's because Allstate brand direct applications more than offset the decline and insurance brand and that reflects the redirection of branding investments and resources from issuance to Allstate brand.

We expect continued growth and the direct channel as we optimize web and call center sales capabilities.

A relatively small number of independent agents operating under the Allstate brand and had a small positive impact on overall growth, but a really nice percentage increase among that group and it highlights the growth opportunity, we have going forward and the channel as we transition those appointments day national General overtime expand national <unk>.

<unk> product offerings, upmarket and endorse the brand as an Allstate company.

The overall Allstate and insurance policies in force maintained prior year levels in 2020, as we manage through significant change and our operating model and had a small decrease and retention levels.

You can see all of that and the lower rate.

Total property liability policies and force declined slightly.

Driven by the encompass brand, which will be integrated into national General's platform and 2021.

Now I'll turn it over to Mario to discuss the rest of our quarterly results.

Yes.

Thanks Glenn.

Let's turn to slide nine to discuss the performance of our property and liability business proper.

Property liability results remained strong with excellent recorded and underlying profitability.

Net written premium declined and the fourth quarter by one 5%.

While homeowners premiums grew three 2% from the prior year quarter due to average premium and policy growth. This was more than offset by a modest decline in auto insurance premiums driven by premium refunds.

Underwriting income of $1 4 billion and the fourth quarter and $4 4 billion for the full year increased relative to the prior year by $420 million and $1 6 billion respectively.

As shown in the chart on the lower left the recorded combined ratio of 84 in the fourth quarter improved four seven points compared to the prior year.

This improvement was primarily attributable to a lower underlying loss ratio and auto insurance driven by fewer auto accidents, partially offset by higher auto insurance claims severity and a slightly adverse underlying loss ratio and homeowners insurance compared to prior year.

Homeowners continues to generate attractive returns with a recorded combined ratio of 78, five and the fourth quarter and 90.0 for the full year 2020.

Additionally, the underlying combined ratio performance has consistently achieved our low <unk> target, which speaks to our expertise and managing this business.

Favorable underlying loss ratios were partially offset by higher catastrophe losses, along with restructuring charges related to transformative growth.

The underwriting expense ratio improved 0.2 points compared to the prior year quarter, which reflects a six point improvement and the expense and the expense ratio, excluding restructuring cost, partially offset by four points of restructuring.

As you can see from the chart on the bottom right when excluding restructuring charges and impacts from actions taken as a result of Corona virus. The expense ratio improved one point in 2020, and one nine points over the past two years, demonstrating continued progress towards the goal of reducing our cost structure.

To maintain returns while improving the competitive price position of auto insurance.

Shifting to slide 10, let's discuss protection services, which were formerly known as our service businesses.

Protection services revenues, excluding the impact of realized gains and losses increased 17, 5% to $497 million and the fourth quarter, reaching $1 9 billion for the full year.

Allstate protection plans continued to deliver significant growth ending the year with nearly $1 billion and revenue.

Policies enforced increased 28, 6% to $136 million driven by Allstate protection plans.

As shown in the table on the bottom right. Adjusted net income was $38 million and the fourth quarter and $153 million for the full year, representing increases compared to the prior year of $35 million and $115 million respectively.

The increase in both periods was driven by growth of Allstate protection plans and improved profitability at Allstate roadside services.

Now, let's turn to slide 11, which highlights investment performance for the fourth quarter.

The chart on the left shows net net investment income totaled nearly $1 2 billion and the quarter, which was $502 million above the prior year quarter, driven by higher performance based income.

Performance based income totaled $557 million and the fourth quarter as shown in gray, primarily from higher private equity valuations and gains from sales of underlying investments.

Market based income shown in blue was $63 million below the prior year quarter with lower interest rates, our reinvestment rates remain below the average interest bearing portfolio yield reducing income.

GAAP total returns are shown in the table on the right.

2020 portfolio returned totaled seven 1%, reflecting income generation and higher fixed income and public equity valuations.

Our performance based investment return was 7% for the quarter and for 9% for the full year.

Our performance based strategy has a longer term investment horizon, and higher but more volatile return expectations compared to the market based portfolio.

The compound annual rate of return on the performance based portfolio is eight 8% over the past five years as shown in the bottom right of the table.

Seeding the market based portfolio return by 330 basis points.

Let's move now to slide 12, and review results for Allstate life benefits and annuities.

Allstate life shown on the left recorded adjusted net income of $56 million and the fourth quarter $20 million below the prior year, primarily driven by higher contract benefits as Corona virus death claims totaled approximately $30 million in the quarter.

Allstate benefits adjusted net income of $34 million and the fourth quarter was $18 million higher than the prior year quarter, reflecting lower benefit utilization likely due to the corona virus and the non renewal of a large underperforming account in 2019.

Allstate annuities had adjusted net income of $160 million and the fourth quarter attributable to strong investment income generated from the performance based portfolio.

Starting in the first quarter of this year the majority of the Allstate life and annuities business will be classified as held for sale on our balance sheet and results will be presented as discontinued operations. Following our recently announced agreement to sell Allstate life insurance company.

Now, let's move to slide 13, which highlights Allstate Allstate attractive returns and strong capital position.

Allstate continued to generate returns that are among the highest in the insurance industry with an adjusted net income return on equity of 19, 8%.

Excellent capital management and strong cash flows have enabled allstate to return cash to shareholders.

While simultaneously investing in growth.

Capital deployment strategy, which leads to increased shareholder value.

Investing in growth opportunities remains a priority.

Evidenced by our investments and building higher growth models, and completing the $4 billion acquisition of National General.

We also continue to provide cash returns to shareholders and September Allstate executed a $750 million accelerated share repurchase agreement and upon completion on January 12th one for $5 billion remains on the $3 billion.

Common share repurchase authorization, which we expect to complete by the end of 2021.

We returned $2 4 billion to common shareholders and 2020 through a combination of $1 7 billion and share repurchases and $668 million and common stock dividends.

Last week, we announced the pending sale of Allstate life insurance company, which will enable us to redeploy up to $2 $2 billion of capital out of lower growth and return businesses with minimal impact to our two part strategy.

With that context, let's open up the line for questions.

Certainly ladies and gentlemen, once again, if you ask a question at this time. Please press Star then one on your Touchtone telephone. We also ask that you limit yourself to one question and one follow up if necessary. Our first question comes from the line of Josh Shanker from Bank of America. Your question. Please.

Yes, thank you very much.

One thing that really Didnt Express maybe you can talk about is the extent to which we're seeing by downs to like pay per mile products and whatnot and.

And when it is going on that Youre, keeping the homeowners and not be auto two works and it is a customer.

Being a shrinking their wallet with Allstate, taking place and this transition.

John.

And Josh This is Tom I'll start and then Glenn you talked a little bit about my life and our success there.

First.

And we don't really see and unbundling I know you mentioned that in your report.

Our actually bundling percentage went up and that doesn't mean that it's not happening and.

And we just don't see it but we're seeing our bundling actually go up and as it relates to.

The buying down and sort of getting lower average premium I think what what youre seeing is through telematics is more accurate prices the way I would describe it and so if you look at our total revenues, we take in and then what we pay out.

And as Glenn showed consistently made money and off insurance for a long period of time.

And that'll change by customer so if somebody gets mile wise and they only drive.

2000 miles a year and paid less and then there'll be somebody else that will have to charge more so we maintain that overall profitability. So.

We see it as a good thing that people get the most accurate price and particularly since we're more sophisticated and most of the industry and we have some other tools like telematics, Glenn what would you add to either bundling or.

Telematics.

Yes. So thanks for the question, Josh I think on the bundling side I would look at as it actually I'd flip it the way Tom did there we're actually seeing some increase and bundling and I think that's helping our homeowners. So part of the story and the homeowners growth. It's only part because we've got a lot of good parts of the story and homeowners there is bundling.

In terms of mile Wise and driveline as I'll talk about both of them, we've definitely seen and increased demand.

Right now we have mile wise available too.

245% of the market and we're continuing this year to roll out to more states and we have drive wise and just about everyone. Just one state that doesn't allow it but.

The demand for telematics has gone significantly up mile Wise for example, and admittedly a relatively small base, but was up 35% in terms of sales. So people are looking at the pandemic. They are not driving as much it's where advertising at a little bit and where we're getting a lot of people interested and the.

Notion of pay by mile from a driveline standpoint.

Most people really want to now include the telematics as part of their offering from us. So we're seeing a nice upswing on the demand post pandemic.

Okay.

We can go to the.

The slides and prepared on page eight you have this very interesting slide by new issued applications I'm trying to understand it a little bit better first of all in when it says Allstate brand direct.

Submissions were up but issuance was down is that for months of Allstate brand direct and eight months of <unk>.

When we should think about that not only is allstate brand, bringing more customers and insurance, but it's a smaller timeline.

And the right way to think about that.

No those numbers are for the entire year.

And what we're trying to show there is that.

We believe we've made successfully made the transition to the Allstate brand selling direct both operationally, which wasn't simple by the way in terms of changing web flows and all kinds of other stuff.

They are getting the branding changed.

And putting the price discount in and.

If you buy direct under the Allstate brand.

Because it doesn't come with an agent. So we made that change and when and what that shows is that overall. We did we grew there is we did we did keep selling some under the insurance brand those companies.

Because they're opened their.

People getting on our website they track the way down to it. So there is really low cost business. So we didn't completely shut off Josh the issuer and stuff. So you can still buy over time. It will go away as we quit advertising it and quit doing and people quit coming to that website. So what it's really trying to show.

There is.

And that we've made the turn indirect and we feel good about our ability to operate under one brand and there were many people didnt think that was possible whether that was perceived channel conflict or just operational capability.

And then on the EAP channel part.

A significant portion of annual.

New policies coming through the E channel coming from new appointments.

If we don't do a lot of new appointments going forward should we expect that the multiyear issue.

In terms of growth and the <unk> channel.

I don't think you should think it's a multi year issue.

Obviously, Glenn mentioned, we're trying to.

Our working on creating some new higher growth models and he can talk you through that and a second here.

And the part that may not be as obvious is and.

The.

Looking at the.

And they're putting allstate agents onboarding and with the old model, the commissions were substantially higher than that and Pedro and existing agent and the idea being you know if you opened an office and you got nobody coming in and they sell the first policy that you need to make some money and the commissions were quite high there, but glenn.

Working on is coming up with a model where an agent can build a business.

And be successful without us having to incur the additional cost upfront to build it which kind of rolled out over a three to five years. It was expensive and so we've made the what we thought what we made was the economic choice which was.

Save shareholder money don't keep investing and a model that you think you'll get a better one for.

And then get the exist make sure the existing agents continue to grow Glenn do you want to talk about the new agents and then.

And what you've done with the existing agents as well.

Yeah, absolutely, so and I always want to emphasize on this.

Our exclusive agents are a huge strategic advantage for us and and.

And a core capability for Allstate.

As much as we talk about and and I'm excited about the direct growth and what we can do and and the independent agent channel.

It's still.

For a large large channel out there and a lot of customers really like to go to a local agent and if branded agents like and Allstate agent and go there. So it's a great model for us and we want those agents to keep winning so what we've done with existing agencies. As you know we've shifted compensation a little bit we've motivated more on the new business side and then.

Just on the renewal side.

But we're also working with them on the way we market, we're putting more money into marketing, we really want them to be successful from a new agent standpoint.

And we've got a few models and market right now and and without going too detailed into it. The general theme would be if you think about the virtual world. We're operating in can you have.

Local agent that doesn't really require brick and mortar and.

And we think the answer is yes to that and there's an opportunity for agents to be a local point of sale people, who are active and the community people, who who have relationships locally and sell through those relationships and in their communities, but don't necessarily have a staff and have a brick and mortar off.

Yes.

We performed the backend service and a more centralized way, it's a significantly lower cost model to get started as Tom mentioned and one that we're we're pretty bullish on our ability to scale.

Okay.

And just to see it thanks for the detailed answers and good luck.

Thank you. Our next question comes from the line of Greg Peters from Raymond James Your question. Please.

Greg Peters, who you might have your line.

Phone on mute.

Yes, sorry about that good morning, everyone.

My first question is around price and competitive positioning.

Obviously, we're listening to and watching the new products for the rolling out the product enhancements and the focus on profitable growth.

The underlying combined ratio for the year or 79 three.

And is obviously a very excellent result, but do you think that your price for Allstate brand auto is competitive and the marketplace, considering how profitable the businesses at the moment.

Greg This is Tom.

And the answer is yes.

That said, we think we can be even more competitive.

And then it's a complicated question for us because with billions of price points.

And you.

And some segments youre not competitive at all because you don't want to be competitive because you think that's somebody else's charging and other places you want to be competitive and the trick is.

Where you want to be competitive to be competitive enough to win the business and.

And that's a competitive day here and giving a margin and so we have a very sophisticated approach to doing that.

We do think that we can shift.

We can change our pricing and so we can be more competitive overall, but yeah. We look at our close rates and were right and the market and then it depends who you hurt yourself too right. So if you look at us versus it.

Other people, who have exclusive agents and.

<unk> and <unk>.

And we're very competitive.

And if you look at versus direct and I'd say for less sales, which is why we made the change to put in a direct at discount and that business. So we were more competitive with and because people are not getting an agent and they'd want and pay for one so I'd say, we're highly competitive that said I think we can always be.

And when you look at.

What drives customers purchase price a lot of it's the price right now you've got to make sure you make enough money.

And that's the trick Glenn.

Glenn anything you would ask for that.

Just a couple of things.

I'll hit there one would be.

And you mentioned, Tom the close rates and so we keep a really close eye on our close rates and our close rates have improved our new business is up and when you look at.

Youre talking Greg auto, but I'll say auto and home, we were up 2% and 8% respectively between them on new business. So folks are buying the product and and you really can't you really can't sell the product if you're out of the market from a competitive standpoint. So those are good signs that we are but we're working to get more competitive and the last.

Point I'll make with it is.

And I always go back to this we manage state by state.

A talented group of state managers that like day they've.

And they've got their hands on the lever and each state and Theyre looking at the competitive position, specifically and that market and as Tom said on which types of business or are we more or less competitive and younger drivers older drivers.

Homeowners not homeowners Mary not Mary at all all the different components in there and theyre pulling those levers and getting us as competitive as we can be while earning attractive returns.

Yeah.

Got it thanks for the color there I'd like to pivot to the expense ratio I think.

The chart you put on slide nine of your presentation.

And <unk>.

Very strong improvement.

From 2018 to 2019 to 2020.

So two questions two part question for.

The result, and then going forward how much of the 23 two is benefited from reduced T and the because of lockdown for.

And.

And look at a different way I know you've been focused on integrated services platform and other other tools is it and expectation that there you can drive further improvement in 'twenty, one and the expense ratio.

So Mario has been our lead on cost reduction Mario do you want to take that.

Sure. Good morning, Gregg. Thanks for the question when you look at the expense ratio for the year and the improvements. We made we came into the year really focused on taking cost out of two principal areas. One was acquisition related costs and the other one was operating costs, which.

T and each component as a part of that but those are people related costs and operations and.

And those types of items and that's really what's driven the improvement once you take the noise of restructuring and pandemic related costs out of the equation. The improvement we've seen this year has really come from those two principal areas.

We've actually spent a little more on marketing like we said, we would as well so but our reductions and those two areas have really created the space for us to increase our our growth related investments.

As we go forward you know as we've said on past calls our focus is on continuing to drive.

Our cost structure down because it is a core part of our growth strategy. It is how we're going to be able to continue to improve our competitive positioning.

In terms of auto insurance pricing and continuing to deliver really attractive returns. So that's a core part of our strategy and our focus is to continue to drive that ratio down.

Got it thanks for the answers.

Thank you. Our next question comes from the line of David Motivating from Evercore ISI. Your question. Please.

Hi, Thanks.

Just a question and.

And and.

<unk>.

I believe and one of the slides you had just talked about how you had a 94 for average combined ratio in the auto business over the last five years. Excluding 2020, that's obviously, obviously 2020 as the abnormal.

Abnormal year, but is that sort of a level youre comfortable getting back to in order to to return to growth and.

And I guess, what sort of level are you willing to let that go to in order to accelerate growth.

Good morning, David Good question, I think I would go up that all the way up to the top and say that what we've said is we can grow the market share and personal property liability and as a company will deliver 14% to 17% return on equity.

And we believe that will drive lots of shareholder value both in terms of economic value creation and valuation multiples.

When you look specifically at the components of that.

We have a headwind and investment income with low interest rates.

We do have and have had for a long time, great profitability and auto insurance, we would've put a longer period of time in there, but the pension accounting kind of changed the way we did it but we've been earned and great returns in the <unk>.

Auto insurance business for a long time and expect to continue.

And the 90 for you still are and a really attractive return on equity because of the.

You don't have to put up as much capital on that line and some other lines and.

And so 90 for would be but we don't like to make as much money as we can and grow as fast as we can and it's really about how do you drive net present value for the whole company.

So we don't have we don't publish and have a targeted safety there, but 90 for would be a return I would be highly comfortable with.

I'd be comfortable at 93 and make up to a 95. They are all really great returns. The other part to focus on is homeowners insurance.

That's a higher capital return business and so we have a lower combined ratio there and you know, we're 10 to 15 points better than.

And other large public competitor, which is somewhere between $700 million and $1 billion a year of profit. So we think all of those and then add up to a 2014 to 17 and sharp turn and so we're comfortable we can grow the business and are good returns.

And and you know it will bounce around as you saw as you mentioned this year you know frequency went way down sales.

Sales made a bunch more money.

And when frequency goes back up we'll just have to raise our prices up and the question is are you good at it and the point of putting those two.

And the statistics and the bottom and that page was just to give our shareholders comfort that we have a history of managing returns and profitability and we expect to continue to do it not going to be the same every year because the world changes, but we know how to make money.

Great that's helpful. Tom.

Appreciate that and.

I guess, just maybe switching gears, a little bit to the new appointed agents and thanks for the slide on chart eight or slide eight I'm, sorry that was a that was very helpful.

Some encouraging trends there I guess I just wanted to ask on the new and yet.

The new.

The new agents and appointments.

Do you expect that to still be a drag in 'twenty, one or is that something that well.

We'll turn from a drag to two and addition to new apps and to growth or is this.

Is that something that you expect to still be a little bit of a drag as these new models ramp up.

I'll make some overall comments and and Glenn you may want to make some comments first I would say that.

When you do these year over year comparisons and sometimes I feel like the.

The external view of the company you just look one year and so next year. Obviously, we won't have had had that much for this year, so more to actually be a.

And it versus the prior year that said I think the transition of Allstate agents to higher growth.

And lower costs.

We will have some bumps and it that said as you see when we the people we focus on.

And the existing agents that are doing well they know how to grow and you know they know their local market. They are aggressive salespeople. They have aggressive sales people working for them and so.

I don't know that it's Jay.

And as simple as you know like that's now gone and we get the new and the new one we think should add additional volume for us and Glenn can talk about how and how that will rollout and then at the same time.

Beauty of our strategy is is direct grows.

Keeps our advertising money highly effective because if we're not closing enough.

Because through some agent changes, we can close more and direct so we have a we have a fall back we don't think we need it but we got plenty of opportunity balanced between those.

And what is your you want to talk about the.

Thank you.

Viewers and the agents, we have a ways to go to actually figure it all out, but we're making good progress.

Yeah.

Great question.

I think if you think about that chart and you look.

Across the direct part two I think it's a similar story like.

And I think 2020 is a story of really good success, we built the foundation and that year and actually manage to.

<unk> more on the Allstate side, and we lost on the issuance side and so that's sort of an ideal scenario that while you're while you're in the midst of of the market and the Myer.

Making a change like that that you actually were able to grow it.

We absolutely are making that type of change within the system.

We've said, we've got a lot of agents out there that are phenomenal and what they do and they grow and we're going to invest with them and happened and be successful and then we had a new model upcoming I think.

I think the way to look at this is to cross all three channels with Eas.

We will ramp up sometime later this year, some new models and through <unk>.

And next year and so there is that coming as well as work with the existing <unk> that that really know how to grow.

And with direct we've really done a lot of the heavy lifting of making the transition and we should be able to continue to grow and we're very confident and our ability to continue to grow it with IAA.

Which really for all intents and purposes, a bit of a new channel for US I know, we've had and encompass and the small allstate independent agents and there.

And really jumping into the top five.

We will start like the first state for rollout in the third quarter of this year with new products going upmarket on the National General platform National General and Allstate Company platform and.

And then multiple states per month, and Michael will be finished with the rollout of cross all 50 states through 2022. So you can kind of see all of these things coming together and we're building.

Building, a long term and sustainable growth platform across all other channels.

Got it that's helpful and if I.

And and and I think the new agent the new age and strategy is.

I mean, it sounds actually really promising I guess one one question I have is are those new agents.

I guess the more remote exclusive agents are those are they as productive as as under the old brick and mortar model.

I would say, we don't know yet.

Yes.

But we do think it'll be lower cost if you want and I'd look at it that way.

But absolutely.

And you might have to have more people doing it and then David you get a little bit of math because the <unk>.

Existing agent talks and salespeople and their office. So when you do it by agent, but then they might these people might be solo producers. So.

Net net we think we know over half the people want to buy from a person.

And having a person local is good it's just the way we've traditionally done it.

Hasn't given us as much growth and and it's cost don't need to be as high as they are today.

Great. Thank you.

Thank you. Our next question comes from the line of Michael Phillips from Morgan Stanley. Your question. Please.

Thank you don't want anybody from you guys mentioned the impact on that.

At the end of the payment plans independent Michael and retention and growth and the quarter. I guess is it I guess per day. This is there any way to quantify that and what I want to get out is if so how much of it given that the eas and the bulk of your business how much of.

Was there a drag on retention because of what youre doing with commissions and emphasis on direct and everything else is going on and so can we quantify that impact one and and how much of an impact of everything else was around retention.

Well.

Glenn can give you some detailed specifics on the year of course retention is always hard to figure out right. Because you have a bunch of stuff going on and you have and you know.

People changing lifestyle, not driving as much and some people are shopping more you have competitive moves.

Things that we did like shelter and place payback.

And and payment plan forgiveness not for.

Goodness, we just let you differ and.

So as those things roll through the system, it's kind of it's hard to do attribution on it that said.

It was down this year, which of course, we were approached and.

Our net promoter score really peak throughout the year, we get peaked and about July when we were doing all the shelter and place feedbacks. It came down a little bit towards and the year and that not anything of any consequence here of significance Glenn.

Glenn do you want to make a comment about the actual retention numbers.

Okay.

Yes, I don't know if I can add a lot to what you said Tom. Thank you you hit it well I mean the.

Retention is in a decent range right now so it's off of our highs that we hit but well within our long term window on retention of where we've operated and certainly all the things that Tom mentioned.

And I had a drag on it we know that the.

Coming due of <unk>.

Special payment plans had some drag on it and the competitive environment, we know that there.

There were some.

Competitors out there and it took some rate of.

Down.

We also know that people facing financial hardship.

Either shops, some people even give up a car. So all of those things have have some play in it and as you said Tom attribution is.

And next to impossible on that but.

We're within a decent range of our long term retention and we're focused on it and of course, we want to retain every customer that we work hard to get and the first place.

And I think if they if the underlying question there was our existing agents.

And that's forming.

Well enough to keep retention levels up or somehow we made a man or something like that.

Our answer there would be no we.

We don't see any and there that says and existing agents.

And are doing anything that they haven't done before.

For that Theyre, not stepping up and helping their customers, even more and the pandemic.

It really reached out and tons of calls and shelter in place and the payment plans and that kind of stuff. So our agents who are doing a great job and I don't think there's anything structurally and there as it relates to this transition that says we're not and I would point out that that's a huge part of agent compensation.

Their interests are aligned with our interests, which is keeping our customers happy.

Okay. Thank you that's all for.

Second question still on kind of the channel mix near term and longer term pushing and the near term I guess just this year.

Talked about a one point change and market share should we expect that to be kind of even throughout the year or more back half weighted in terms of the market share shift and then longer term more interested and.

And maybe 10 years 10 years down the road Whats Allstate look like how does this mix look a third a third a third or something still weighted towards here and I E.

Thanks.

Well, we closed National General and January 4th.

No.

And that in and of itself means we will get that revenue for the entire year.

So you should expect to see.

Total auto premiums go up.

Throughout the year, we would expect that and.

As we continue to rollout things and the Allstate brand that we.

We start to see some more growth in and.

And that business overtime.

And yeah, but we don't really give it out and then even do it by quarter and just as much as you can in terms of the long term I'm like.

We'll take anybody we can get back.

We have we have one out of 10, and we still got 90 day that tend to go.

I'd be happy if all of them got a lot bigger and that's what we're setting up to do it. So we don't have a.

Percentage when you look at percentages from what customers want.

You have about it.

It's probably today, 25% of the customers really prefer self serve and that's a it's a range.

If you look at those who want an agent.

It's over 50%.

And usually around 65% or about 60%.

And then in between you have people who are sort of they go with whatever is in front of them.

And there and different so we think there's plenty of opportunity and growth. Some of the shift you see in channels is really due to customers wanting it differently like not feeling like they need help.

To buy the product.

And that shifted just because direct companies had been advertising more so.

You yell loud enough and people come to you.

So we think what we should do is give people exactly what they want and give them choice.

And what they want in the with the person is really helped by it and they.

Need and want less help on service and.

And so the existing.

Insurance agent businesses have been built on both what we're trying to focus on is really helping them buy and then give them self serve or have computers do it or whatever to lower the costs and the service side, because it's cheaper better and faster.

So we don't need to do as much local services. We do so we will take as many people as we can get through any channel.

Okay, great. Thanks for all of that is for sure.

Thank you. Our next question comes from the line of Paul Newsome from Piper Sandler Your question. Please.

Yeah.

Paul you might have your phone on mute.

Sorry about that.

And thanks for taking the question and I was hoping you could.

Maybe help us understand a little bit more about how the investment portfolio will look after the life sale.

Well, the P&C business kind of him and little bit of a different.

Our mix of assets and will that have an impact on the yield as well.

Great and Paul Let me, let me give you a slight overview from a corporate standpoint, and John can talk about the specifics. So obviously the sale of Allstate life insurance company substantially reduces our investment portfolio as we exit our spread based business.

And the Blackstone entity is taking almost all of the assets that are used for asset liability match that business. They are not taking all of the performance based assets. So that increases the percentage some relative to the overall portfolio, which also gets smaller.

And we looked at it obviously prior to sale, we're comfortable with the risk and return of it.

And you will remember that we reduced our equity holdings in February this year by $4 billion not because of the Allstate life sale, but because we just didn't like the risk and return profile. There. So we do make changes up and down and this will still have the ability to go up and down even though this port.

And the portfolio is less liquid than the public equities, you'll hold because we still have public equities would get high up and have a bunch of ways. We can manage the overall risk and the portfolio and we're very comfortable with where it will be John you want to talk specifically about for space.

Yes, Thanks, Tom and.

Thanks for the question for the.

And when you look at performance space too, it's part of a broader overall portfolio context. So that percentage will go up we look across risk and return factors across every security and every investment we hold and ticket and its entirety. So as Tom mentioned, we have a lot of ways to compensate for additional <unk>.

And we may take and one area when.

When you look at the performance space.

If you use this as a long term holding for US we've looked at gradually growing that over multiple years and in some ways. This just accelerates that gradual path that we're on as we built this portfolio. We've always looked for the best partners and the best direct investments, we can across private and.

Equity real estate and other areas and the assets that we'd be bringing on board are ones that were already very familiar with we already own them.

And very familiar so it accelerates.

Our path forward and a way that we're we're quite comfortable with.

And I.

I guess I'll just finish by saying that the return on this and has stood up quite well over even and what's been a volatile year, we'd been looking back at what our returns have been over the last five years and 10 years and our performance based assets.

Faired quite well relative to public markets and we think that it continues to be and integral part of the portfolio.

Johnson, let's take one last question and then we'll wrap up to keep people on time.

Certainly our final question for today, then comes from the line of Gary Ransom from Dowling and partners. Your question. Please.

Yes, good morning, I wanted to loop back on telematics you'd mentioned increased demand for the product.

A couple of questions. There did that make any material difference to the growth and new business that you're seeing if what where that roll forward you showed on slide eight and.

And then secondly, whether the difference between your mile by the mile product and the standard product, whether the demand is different and and with that question and I'm really just trying to think ahead is the by the mile product.

More of the way of the future.

Gary Let me make couple of comments first I don't believe it's actually driven people to us So I think with our advertising when they get to us.

And then we talked to them about it they're like Oh, that's interesting you're going in and what it enables us to give them a more accurate price, which protects them competitively.

More accurate the price they are the if someone takes them away from us.

And and were really accurate by through a lower price and though we think lose money.

And and we won't lose people because we're over price for the risk. So it's really it'll drive more sustainability to growth as opposed to people, calling us and saying, Hey, I don't like it and that doesn't mean people don't see our ads and say Gee and prior to paying this much for insurance and I hired they drive.

Total costs, but I'm, not seeing a big wellspring and people, saying 'cause it tends to be more in the sale itself and.

In terms of a long term basis I think this is where the pricing will be done.

Insurers for a long time, but I'm trying to get more and more accurate and the individual risk, particularly in auto insurance and home insurance for that matter for telematics here, but it is and you know.

Credit was a big move.

15, or 20 years ago, and when we first got into that using step by the credit file and it.

Very powerful this is very powerful and powerful not so much and that part of the curve that being moderate risk people, but and really low risk or really high risk people. It's very effective. So I think it will lead to more sustainable growth through better retention, because we will have a really accurate and can.

<unk> price.

Thanks. That's helpful. Can you also talk a little bit about how you might be using telematics on the claims side, whether that is developing or having much effect at this point.

Glenn do you want to take that.

Sure.

So we've got we've got some capability there that is I would I would call it developing and.

And.

About accident notification and I think this is.

Tom talked about it being the way for the future for pricing, which I totally agree with from it.

And the telematics.

I think it's going to be the wave of the future. You know when you think about connected cars, you think about our devices and OLED ports or even the mobile there's there's accident detection through arity.

Through the mobile telematics.

So early notification emergency notification first notice of loss, taking our all areas and development and I think will be a way for the future.

Hey, Gary I would expand on that and say if you go to digital claims settlement. We believe we've been leading the industry, whether that's quick photo claim whether that's using algorithms to look at pictures and decide how you should sort of a claim I know there and.

The other company is talking about going into a spec and raising some money we've worked extensively with that company and.

We think our.

Platform, our technology and the ability to utilize data will make us even better it settling claims and so it's not really related telematics, but its really related digitization of the business, which is another way that we're trying to change both our business model and really our culture.

And just to drive that kind of growth.

Well. Thank you all for participating we are trying to build really transformational growth business models, it's more than a plan and that's really a way of life and.

And we expect to deliver increased growth and earn good returns, which will both create economic value just because we make more money and should lead to higher valuation multiples.

Thank you much I will talk to you next quarter.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Allstate fourth quarter 2020 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone and we'd like to ask you to limit yourself to one question and one follow up.

And if necessary as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Mark Nogle. Please go ahead Sir.

Thank you Jonathan.

Morning, everyone and welcome to all states fourth quarter, 'twenty and 'twenty earnings Conference call. After prepared remarks, we'll have a question and answer session yesterday following the close and the market we issued our news release and Investor supplement and posted today's presentation on our website at Allstate and Busters Dot com.

Our management team is here to provide perspective on these results and.

Noted on the first slide of the presentation, our discussion will contain non-GAAP measures for which there are reconciliations and the news release and Investor supplement and forward looking statements about allstate's operations.

All of these results may differ materially from these statements. So please refer to our 10-K for 2019 and other public documents for information on potential risks and now I'll turn it over to Tom.

Well good morning, Dan Thank you for joining us.

Amidst the pandemic.

Allstate delivered really attractive returns, while building higher growth business files, and 'twenty and 'twenty exceptional.

And our progress has made building higher growth business miles to execute our strategy of increasing market share and personal property liability and expanding protection offered to customers.

And as you know one of our key focuses this year was transitioning the personal property liability business to higher growth.

Took decisive action and despite the operational complexity of these actually maintained Allstate brand property liability policies and force will take you through a reconciliation of the various components of it and you'll see the path to grow.

We made excellent progress and expanding protection offer to customers with total policies in force increasing by 25% nearly a 176 nine.

We took advantage of the decline and auto frequency auto accident frequency and our cost reductions to improve our competitive price position and auto insurance, while maintaining attractive return.

The acquisition of National General is expected to increase auto insurance market share by one percentage point in 'twenty and 'twenty, one and provides another platform for growth and it may expand its product graph. These changes position allstate for sustainable long term growth and.

And the same time Allstate generated strong profitability and returns and claim from net income was $2 6 billion and our fourth quarter and adjusted net income was $1 8 billion or $5 87 per diluted share.

This was driven by lower frequency of auto accidents.

<unk> strong profitability and homeowners insurance and higher performance based investing.

Net income was $5 $5 billion and adjusted net income was $4 $6 billion for the year misrepresented.

This represents a 19, 8% return on equity far in excess of the life insurance companies.

Our strategy to increase market share and personal property liability why expanding protection services to customers will increase shareholder value.

Higher property liability growth with attractive returns and rapidly growing and detection services expand our total addressable market.

And this growth combined with our proactive capital deployment strategy supports returns and equity above the insurance industry and are comparable to the S&P 500.

Slide three is there a touch based on their strategy operating price. So we're not going to spend time on that so let's move to slide four and discuss this strategy as it relates to the property liability business.

And transforming and it goes to become more than a plane.

About creating a business model capabilities and culture that continually transform to deliver market share growth.

This is done by focusing and the customer any assets.

And improving value.

And expanding access includes all the ways customers choose and interact exclusive agents directly to call centers and the web and independent agents.

The largest part of this change was transitioning our exclusive agent and direct businesses. The operating under the Allstate brand. This gave us the ability to lower cost leverage scale and increased advertising.

This transaction is successfully being implemented and we achieved key milestones in 'twenty and 'twenty.

We were pleased with new business growth from existing Allstate agents, who remained key to serving our customers and growing.

Property liability business from existing agents met our goals, except for the pandemic slowdown in March and April workhorse, and nobody was buying anything and we shifted commission to new sales from retention.

We're testing new age and miles with less real estate and more efficient service enabled by technology with the goal of having strong local personal relationships with customers.

These models will also create learnings to enable existing agents to achieve higher growth.

As a result of that we did stop appointing new Allstate agents and in early 2020, while our higher growth and lower cost models being developed.

And the negative impact that points of presence and new business sales.

At the same time, we increased direct sales and.

And that was that overall policies in force remained the same through the transition despite a drop and retention, which was concurrent with the ending of special payment plans related to the pandemic, Glenn and I'll take you through that reconciliation and a couple of minutes.

The acquisition of National and General and January also improves growth prospects and and as you know this is essentially a reverse merger and national General team is joining allstate and theyre going into holiday and our independent agent business and encompass and AI into their operational and technology platform.

And then we're going to be able to broaden national General's product portfolio, using Allstate standard auto and homeowner's insurance capabilities, which will create growth through independent agents.

We also made great progress and improving customer value last year from a customer value standpoint, we've maintained attractive margins through cost reductions while investing for growth.

This includes improving the competitive price position of auto insurance through targeted rate reductions and a direct pricing discount and.

Well most of the changes due to the lower frequency of auto accidents. We are also reducing costs to ensure we continue to generate attractive margins. We're also expanding our industry, leading telematics offerings and drive wise and myeloid to further improve our value proposition and improving price and specification. We're the only company that major company signed mile Wise, which is.

Very attractive customers today, because they're not driving as much.

Our goal is not just execute.

Plan, but to continually generate transformational growth, we hit the brand market position resources capabilities and strategy to deliver this for shareholders and extensive allstate agent platform delivers more value per dollar to customers and competitors and <unk>.

Direct business utilizing the Allstate brand competitive prices and broad product offerings and our insurance expertise.

And independent agent business and national distribution and strong position in both auto and homeowners insurance and.

And protection services with innovative business models, and expanding total addressable market.

Well on our way to achieving this goal after putting the foundational elements into place last year.

Let's move to slide four can you discuss allstate excellent financial performance and 2020.

And was $2 $6 billion for the fourth quarter and $5 $5 billion for the full year 2020.

Adjusted net income was $1 8 billion or $5 87 per diluted share in the fourth quarter.

For the full year adjusted net income increased to $4 6 billion or $14 73 per diluted share, we had strong profitability and both auto and homeowners insurance.

Adjusted net income return on equity was 19, 8% over the last four months exceeding our range of 14% to 17%, which is near the top of the insurance industry.

Now I'll turn it over to Glenn and it's got to transition to other property liability businesses the higher growth.

Thanks, Tom.

Let's go to slide six we will discuss how allstate is increasing property and liability market share while maintaining attractive returns.

And the foundational work completed in 2020, Allstate is positioned to grow market share and 21, while developing a leading position and all three primary distribution channels and property and liability.

Some of the actions taken and 'twenty are impacted growth in the near term, but they were critical to advancing transformative growth and the longer term.

Starting with Allstate exclusive agents, who serve customers that value and local advice and relationships, we're focused on accelerating growth and improving efficiency.

Allstate agents continue to be a core strength of our organization.

For further strengthening that model by focusing on new business growth and lowering costs by improving marketing effectiveness centralized and customer services and enhancing customer connectivity.

Leveraging insurance as direct capabilities under the Allstate brand and we've created and Omnichannel experience that meets the customer where how and when they want to interact with us.

We completed the integration of direct processes and systems in 2020, and expect direct sold business to continue to accelerate.

As Tom mentioned National General's and other exciting growth platform for us I mean national General's independent agent facing technology, it's among the best and the industry and then our combined agency footprint covers the vast majority of the U S market. So.

So as we expand products from the National General platform, we're gonna be and positioned to grow share and the IAA channel.

The totality of this go to market model with strong capabilities and each distribution channel is designed to generate higher growth.

Allstate, leading pricing and claims capabilities, including our strength and telematics puts us and our strong competitive position. We're also enhancing our price competitiveness, while maintaining attractive returns and the.

The impact of the pandemic on miles driven and lower costs for auto losses gave us an opportunity to improve auto affordability through targeted rate reductions. We've also lord lowered underwriting expenses as Tom mentioned Theyre down one nine points over the last two years, when excluding restructuring and <unk>.

Corona virus related expenses.

These efficiencies and continued cost structure reductions allow us to improve pricing relative to competitors, while generating excellent returns.

Allstate has a strong record of profitability across lines of business and and different market conditions. The average combined ratio and auto insurance over the last five years with 94 for and that excludes obviously 2020 results, which were influenced by the pandemic.

We are equally strong and homeowners, where we averaged a combined ratio of $89 five over the last five years and.

And that reflects.

The higher cost of capital or the higher capital requirements, I should say and homeowners product versus auto.

The point is we expect to grow and we expect to earn really attractive returns and so.

Let's go to slide seven and we're going to discuss National General.

Acquisition, and a little more detail.

On January 4th Allstate close to $4 billion acquisition of National General we are incredibly excited about the opportunity ahead with national General and and how it advances our strategy to grow our personal lines and it gives us an estimated increase of over one percentage point of total personal property liability market share.

Allstate is now a top five personal lines carrier in the IAA channel, which significantly better competitive position.

We expect to grow by rolling out New standard auto and homeowner's insurance offerings. Starting later this year and completing countrywide deployment and less than two years.

Consistent with past acquisitions, we've developed our measures of success and we're showing those and the bottom of this slide.

First.

And we expect the acquisition to be accretive with growing earnings adding to returns and total profit second we expect to achieve synergies by consolidating the three IAA channel businesses into one improving our competitive position third we will grow IAA channel policies and force by broadening the product offering to fully meet cut.

Our needs for auto home other personal lines and from non standard day middle market to mass affluent.

We will continue to provide updates on our success in this channel as we report a national General brand results and the first quarter.

Moving to slide eight, let's delve deeper into how we strengthen allstate branded property liability distributions.

As we said before some of the actions we took in 2020 negatively impacted near term growth, while accelerating it and other areas we.

And as Tom mentioned earlier, we expect the new models are going to create learnings that enable our existing agents to achieve higher growth too.

The chart and the lower left breaks down Allstate personal auto new business applications compared to the prior year.

If you exclude the declines in March and April due to the pandemic Allstate brand new business increased with an improving trajectory throughout the year, the red bar and the far left of the chart shows the estimated unfavorable impact of the pandemic on new business and March and April moving to the right you can see the negative impact of stopping new agent appointments during 2020.

But that was partially offset by an increase and existing EBITDA production.

And that shows the viability of growth with those existing agents. When we just made a slight compensation change towards new business from renewal.

They just havent, a great opportunity to grow.

Moving to the center of the chart.

We expect continued growth and the direct channel as we optimize web and call center sales capabilities.

A relatively small number of independent agents operating under the Allstate brand and had a small positive impact on overall growth, but a really nice percentage increase among that group and it highlights the growth opportunity, we have going forward and the IAA channel as we transition those appointments day national General over time expand national <unk>.

<unk> product offerings, upmarket and endorsed the brand Ass and Allstate company.

You can see all of that and the lower rate.

Total property liability policies and force declined slightly.

Driven by the encompass brand, which will be integrated into national General's platform and 2021.

Now I will turn it over to Mario to discuss the rest of our quarterly results.

Yeah.

Thanks Glenn.

Let's turn to slide nine to discuss the performance of our property liability business.

And liability results remained strong with excellent recorded and underlying profitability.

Net written premium declined and the fourth quarter by one 5%.

Homeowners premiums grew three 2% from the prior year quarter due to average premium and policy growth. This was more than offset by a modest decline in auto insurance premiums driven by premium refunds.

Underwriting income of $1 $4 billion, and the fourth quarter and $4 4 billion for the full year increased relative to the prior year by $420 million and $1 6 billion respectively.

As shown in the chart on the lower left the recorded combined ratio of 84, and the fourth quarter improved four seven points compared to the prior year.

Homeowners continues to generate attractive returns with a recorded combined ratio of $78 five in the fourth quarter and 90.0 for the full year 2020.

Additionally, the underlying combined ratio performance has consistently achieved our low <unk> target, which speaks to our expertise and managing this business.

Favorable underlying loss ratios were partially offset by higher catastrophe losses, along with restructuring charges related to transformative growth.

To maintain returns while improving the competitive price position of auto insurance.

Shifting to slide 10, let's discuss protection services, which were formerly known as our service businesses.

Protection services revenues, excluding the impact of realized gains and losses increased 17, 5% to $497 million and the fourth quarter, reaching $1 $9 billion for the full year.

Allstate protection plans continued to deliver significant growth ending the year with nearly $1 billion and revenue.

Policies enforced increased 28, 6% to $136 million driven by Allstate protection plans.

The increase in both periods was driven by growth of Allstate protection plans and improved profitability at Allstate roadside services.

Now, let's turn to slide 11, which highlights investment performance for the fourth quarter.

The chart on the left shows net net investment income totaled nearly $1 $2 billion and the quarter, which was $502 million above the prior year quarter, driven by higher performance based income.

Performance based income totaled $557 million and the fourth quarter as shown in gray, primarily from higher private equity valuations and gains from sales of underlying investments.

GAAP total returns are shown in the table on the right.

Our 2020 portfolio returned totaled seven 1%, reflecting income generation and higher fixed income and public equity valuations.

Our performance based investment return was 7% for the quarter and for 9% for the full year.

Our performance based strategy has a longer term investment horizon, and higher but more volatile return expectations compared to the market based portfolio.

The compound annual rate of return on the performance based portfolio is eight 8% over the past five years has shown and the bottom right of the table.

Exceeding the market based portfolio return by 330 basis points.

Let's move now to slide 12, and review results for Allstate life benefits and annuities.

Allstate annuities had adjusted net income of $160 million and the fourth quarter attributable to strong investment income generated from the performance based portfolio.

Now, let's move to slide 13, which highlights Allstate Allstate attractive returns and strong capital position.

And they continued to generate returns that are among the highest in the insurance industry with an adjusted net income return on equity of 19, 8%.

Excellent capital management and strong cash flows have enabled allstate to return cash to shareholders.

While simultaneously investing in growth.

Capital deployment strategy, which leads to increased shareholder value.

Investing in growth opportunities remains a priority.

Evidenced by our investments and building higher growth models, and completing the $4 billion acquisition of National General.

By the end of 2021.

We returned $2 $4 billion to common shareholders and 2020 through a combination of $1 7 billion and share repurchases and $668 million and common stock dividends.

With that context, let's open up the line for questions.

Certainly ladies and gentlemen, once again, if you have a question at this time. Please press Star then one on your Touchtone telephone. We also ask that you limit yourself to one question and one follow up if necessary. Our first question comes from the line of Josh Shanker from Bank of America. Your question. Please.

Yeah. Thank you very much one thing that really Didnt Express maybe you can talk about is the extent to which we're seeing by downs to like pay per mile products and whatnot and.

And wings going on that Youre, keeping the homeowners and not be auto to what extent is it customer.

Being a shrinking their wallet with Allstate, taking place and this transition.

And Josh This is Tom I'll start and then get Glenn to talk about my life and our success there.

First.

We don't really see and unbundling and I know you mentioned net in your report.

And are actually bundling percentage went up and that doesn't mean that it's not happening and.

And we just don't see it but we're seeing our bundling and.

Actually go up and as it relates to.

And the buying down and sort of getting lower average premium.

And what Youre seeing is through telematics is more accurate prices the way I would describe it and so if you look at our total revenues, we take in and then what we pay out.

And as Glenn showed consistently made money and a chance for a long period of time a day.

And that'll change by customer so if somebody gets mile wise and they only drive you know.

2000 miles a year and paid less and then there'll be somebody else that will have to charge more so we maintain that overall profitability. So.

We see it as a good thing that people get the most accurate price and particularly since were a more sophisticated and most of the industry and we have some other tools like telematics, Glenn what would you add to either bundling or.

Telematics.

Yes. So thanks for the question, Josh and I think other bundling side I would look at as it actually flip it the way Tom did there we're actually seeing some increase and bundling and I think that's helping our homeowners. So part of the story and the homeowners growth. It's only part because we've got a lot of good parts of the story and homeowners there.

Is bundling.

In terms of mile Wise and driveways all up.

Talk about both of them, we've definitely seen and increased demand.

So right now we have mile wise available.

245% of the market and we're continuing this year to roll out to more states and we have you know drive wise and just about everybody just one state that doesn't allow it but.

And the demand for telematics has gone and significantly up mile Wise for example, and admittedly a relatively small base, but was up 35% in terms of sales. So people are looking at the pandemic, they're not driving as much.

We're advertising at a little bit and where we're getting a lot of people interested and the notion of pay by mile from a drive wide standpoint.

Most people really want to know.

<unk> the telematics as part of their offering from us. So we're seeing a nice upswing on the demand post pandemic.

Okay.

And I'm trying to just all that and figure out and how it.

And how it works.

We can go to the slides and prepared on page eight you have this very interesting slide by new issued applications I'm trying to understand it a little bit better first of all in when it says Allstate brand direct and <unk>.

Emissions were up but insurance was down is that for months of Allstate brand direct and eight months of issuance.

When we should think about that not only is allstate brand, bringing more customers and insurance, but it's a smaller timelines.

The right way to think about that.

No those numbers are for the entire year.

And what we're trying to show there is that.

And they are getting the branding changed.

And putting the price discount in and.

If you buy direct under the Allstate brand.

Because it doesn't come with an agent.

We made that change and when and what that shows is that overall. We did we grew there is we did we did keep selling some other deal <unk> brand those companies.

Because you know they are opened their.

People getting on our website they track the way down to it. So there is really low cost business. So we didn't completely shut off Josh the issuer and stuff. So you can still buy over time it'll go away as we quit advertising it and quit doing and people quit coming to that website. So what what it's really trying to show.

There is.

And then on the EAP channel part.

A significant portion of annual.

New policies coming through the E channel coming from new appointments.

And if we don't do a lot of new appointments going forward should we expect that the multiyear issue.

In terms of growth and the EAA channel.

I don't think you should think it's a multi year issue.

Obviously, Glenn mentioned, we're trying to we are working and creating some new higher growth model and he can talk you through that second here.

And the part that may not be as obvious is.

And the putting it up.

The and are putting allstate agents onboarding and with the old model, the commissions were substantially higher than that and pay to existing agents and the idea being you know if you opened an office and you got nobody coming in and they sell the first policy and you need to make some money and the commissions were quite high there, but Glenn.

And working on is coming up with a model where an agent can build a business.

Save shareholder money don't keep investing and a model that you think you'll get a better one for.

And then get the exist make sure the existing agents continue to grow Glenn do you want to talk about the new agents and then.

And what you've done with the existing agents as well.

Yeah, absolutely, so and I always want to emphasize on this.

Our exclusive agents are a huge strategic advantage for us and and.

And a core capability for Allstate.

As much as we talk about and and I'm excited about the direct growth and and what we can do and and the independent agent channel.

It's still.

For a large large channel out there and a lot of customers really like to go to a local agent and if branded agents like and Allstate agents go there. So it's a great model for us and we want those agents to keep winning so what we've done with existing agencies. As you know we've shifted compensation a little bit we've motivated more on the new business side then.

And just on the renewal side.

But we're also working with them on the way we market, we're putting more money into marketing, we really want them to be successful from a new agent standpoint.

And we've got a few models and market right now and and without going too detailed and do it. The general theme would be if you think about the virtual world. We're operating in can you have.

Local agent and it doesn't really require brick and mortar and.

And we think the answer is yes to that and there is an opportunity for agents to be a local point of sale people, who are active and the community people, who who have relationships locally and sell through those relationships and in their communities, but don't necessarily have a staff and have a brick and mortar off.

Yes.

We performed the backend service and a more centralized way, it's a significantly lower cost model to get started as Tom mentioned and one that we're we're pretty bullish on our ability to scale.

Okay.

And just to see it thanks for the detailed answers and good luck.

Thank you. Our next question comes from the line of Greg Peters from Raymond James Your question. Please.

Greg Peters that you might have your line.

Phone on mute.

Yes, sorry about that good morning, everyone.

My first question is around price and competitive positioning.

Obviously, we're listening to them and Washington, and new products that you're rolling out the product enhancements and the focus on profitable growth.

The underlying combined ratio for the year or 79 three.

And is obviously a very excellent result, but do you think that your price for Allstate brand auto is competitive and the marketplace, considering how profitable the businesses at the moment.

Greg This is Tom.

And the answer is yes.

John.

And we think we can be even more competitive.

And it's a complicated question for us because with billions of price points.

<unk>.

And some segments youre not competitive at all because you don't want to be competitive because you think that's somebody else's and charging and other places you want to be competitive and the trick is.

Where you want to be competitive to be competitive enough to win the business and.

And that's a competitive day here at giving a margin and so we have a very sophisticated approach of doing that.

We do think that we can shift.

We can change our pricing and so we can be more competitive overall, but yeah. We look at our close rates and were right and the market and that it depends who you hurt yourself too right. So if you look at us versus.

Other people, who have exclusive agents for instance from 10.

<unk> and <unk>.

And we're very competitive.

If you look at versus direct I'd say for less so which is why we made the change to put in a direct at discount and that business. So we are more competitive with and because people are not getting an agent and they'd want to pay for one so I would say we're highly competitive that said I think we can always be.

And when you look at.

What drives customers purchase price a lot of it's the price right now you've got to make sure you make enough money.

And that's the trick Glenn.

Glenn anything you would add to that.

Just a couple of things.

And I'll hit there one would be.

And you mentioned Tom to close rates. So we keep a really close eye on our close rates and our close rates have improved our new business is up and you look at.

Youre talking Greg auto, but Allstate auto and home, we were up 2% and 8% respectively between them on new business. So folks are buying the product and and you really can't you really can't sell the product if you're out of the market from a competitive standpoint. So those are good signs that we are but we're working to get more competitive and the last.

Point I'll make with it is I always go back to this we manage state by state.

A talented group of state managers that like day they've.

Homeowners not homeowners Mary not Mary at all all of the different components in there and theyre pulling those levers and getting us as competitive as we can be while earning attractive returns.

Yeah.

Got it thanks for the color there I'd like to pivot to the expense ratio I think the day.

Chart, you put on slide nine of your presentation.

And <unk>.

Very strong improvement.

From 2018 to 2019 to 2020.

So two questions two part question for us.

The result, and then going forward how much of the 23 to <unk>.

<unk> benefited from reduced T and the because of lockdown for.

Sure.

And I look at it a different way I know you've been focused on integrated services platform and other other tools is it and expectation that there you can drive further improvement in 'twenty, one and the expense ratio.

So Mario has been our lead and cost reduction Mario do you want to take that.

Sure. Good morning, Gregg. Thanks for the question when you look at the expense ratio for the year and.

And the improvements we made we came into the year really focused on taking cost out of two principal areas. One was acquisition related costs and the other one was operating costs, which you're T and each component as a part of that but those are people related costs and operations and.

As we go forward you know as we've said on past calls our focus is on continuing to drive.

Our cost structure down.

It is a core part of our growth strategy. It is how we're going to be able to continue to improve our competitive positioning in.

In terms of auto insurance pricing and continuing to deliver really attractive returns. So that's a core part of our strategy and our focus is to continue to drive that ratio down.

Got it thanks for the answers.

Thank you. Our next question comes from the line of David Motivating from Evercore ISI. Your question. Please.

Hi, Thanks.

Just a question and.

And.

And I believe and one of the slides you had just talked about how you had a 94 for average combined ratio in the auto business over the last five years. Excluding 2020. That's obviously you know obviously 2020 as the abnormal year, but is that sort of a level youre comfortable getting back.

<unk> in order to to return to growth.

And I guess, what sort of level are you willing to let that go to in order to accelerate growth.

Good morning, David.

Good question I think I would go up that all the way up to the top and say that what we said is we can grow market share and personal property liability and as a company will deliver 14% to 17% return on equity and.

And we believe that will drive lots of shareholder value both in terms of economic value creation and valuation multiples.

When you look specifically at the components of that.

We have a headwind and investment income with low interest rates.

We do have and have had for a long time, great profitability and auto insurance, we would've put a longer period of time and there, but the pension accounting kind of changed the way we did it but we've been earned and great returns in the <unk>.

Auto insurance business for a long time and expect to continue.

And the 90 for you still are and a really attractive return on equity because of the.

And you don't have to put up as much capital on that line and some other lines and.

And so 90 for would be but we don't like to make as much money as we can and grow as fast and you can and it's really about how do you drive net present value of the whole company.

And so.

We don't have we don't publish and have a targeted safety there, but 90 for would be a return I would be highly comfortable with.

I'd be comfortable at 93 and make up to a 95, you know, they're all really great returns and the other part and focus on is homeowners insurance.

That's a higher capital return business and so we have a lower combined ratio there and were 10 to 15 points better than.

Another large public competitor, which is somewhere between $700 million and $1 billion a year of profit. So we think all of those and then add up to a 14% to 17 and sharp turns and so we're comfortable we can grow the business and are good returns.

And and it'll bounce around as you saw as you mentioned this year and a frequency went way down sales.

Sales made a bunch more money.

And when frequency goes back up we'll just have to raise our prices up and the question is are you good at it and the point of putting those two.

Statistics and the bottom of that page was just to give our shareholders comfort that we have a history of managing returns and profitability and we expect to can you could you didn't do it not going to be the same every year because the world changes, but we know how to make money.

Great that's helpful. Tom.

Appreciate that and and.

I guess, just maybe switching gears, a little bit to the new appointed agents and thanks for the slide on chart eight or slide eight I'm, sorry that was a that was very helpful.

Some encouraging trends there I guess I just wanted to ask on the new and yet the new.

The new agents and appointments.

Do you expect that to still be a drag in 'twenty, one or is that something that we'll.

And we'll turn from a drag to our two in addition to new apps and to growth or is this.

Is that something that you expect to still be a little bit of a drag.

These new models ramp up.

I'll make some overall comments and then Glenn you may want to make some comments first I would say that.

When you do these year over year comparisons and sometimes I feel like.

The external view of the company and you just look one year and so next year. Obviously, we won't have had had that much for this year, so more to actually be a negative versus the prior year that said I think the transition of Allstate agents to higher growth.

And at lower cost.

And we'll have some bumps and it that said as you see when we the people we focus on.

And the existing agents that are doing well they know how to grow and are they.

No theyre local market. They are aggressive sales people they have aggressive sales people working for them and.

And so.

And I don't know that it's as simple as like that's now gone and we get the new one the new one we think should add additional volume for us and Glenn can talk about how and how that will rollout and then at the same time the.

Beauty of our strategy is as direct grows and it keeps our advertising money highly effective because if we're not closing and up.

Because through some agent changes, we can close more and direct so we have a we have a fall back we don't think we need it but we got plenty of opportunity and balance between those.

Glenn would you is there and you want to talk about the I think the viewers and the agents we have a ways to go to actually and figure it all out, but we're making good progress.

Yeah.

Great question.

And I think if you think about that chart and you.

Across the direct part two I think it's a similar story like it.

And I think 2020 is a story of really good success, we built the foundation and that year and actually manage to.

Grow more on the Allstate side that we lost on the issuance side and so that's sort of an ideal scenario that while you're while you're in the midst of of the market and the Myer.

And making a change like that that you actually were able to grow it.

We absolutely are making that type of change within the.

System Asps.

We've said, we've got a lot of agents out there that are phenomenal and what they do and they grow and we're going to invest with them and happened and be successful and then we have a new model upcoming I think.

I think the way to look at this is to cross all three channels with Eas.

We will ramp up sometime later this year, some new models and through <unk>.

And next year and so there is that coming as well as work with the existing <unk> that really know how to grow.

Which really for all intents and purposes, a bit of a new channel for US I know, we've had and encompass and the small allstate independent agents and there.

And really jumping into the top five.

We will start like the first state will rollout and the third quarter of this year with new products going upmarket on the National General platform National General and Allstate Company platform and.

And then multiple states per month, and Michael will be finished with the rollout of cross all 50 states through 2022. So you can kind of see all of these things coming together and we're building.

Building, a long term and sustainable growth platform across all other channels.

Got it that's helpful and if I.

And and and I think the new agent the new age and strategy is.

I mean, it sounds actually really promising I guess one one question I have is are those new agents.

I guess the more remote exclusive agents are those are they as productive as as under the old brick and mortar model.

I would say, we don't know yet.

Yes.

But we do think it'll be lower cost if you want and look at it that way.

But absolutely.

You might have to have more people doing it and then David you get a little bit of math because the <unk>.

Existing agents also have salespeople and their office. So when you do it by agent, but then they might these people might be solo producers. So.

Net net we think we know over half the people want to buy from a person.

And having a person local is good it's just the way we've traditionally done it.

And given us as much growth.

And its costs don't need to be as high as they are today.

Great. Thank you.

Thank you. Our next question comes from the lineup and Michael Phillips from Morgan Stanley. Your question. Please.

Thank you I was wondering you guys mentioned the impact on.

The end of the payment plans and a pandemic and retention and growth and the quarter. I guess is it I guess per day. This is there any way to quantify that and what I want to get out is if so how much of it given that the eas and the bulk of your business how much of.

Was there a drag on retention because of things that we're doing with commissions and emphasis on direct and everything else that's going on and so can we quantify that impact one and and how much of and in fact everything else was around retention.

Well.

Glenn can give you some detailed specifics on the year of course retention is always hard to figure out right. Because you have a bunch of stuff going on and you have and you know.

People changing lifestyle, not driving as much and some people are shopping more you have competitive moves.

Things that we did like shelter and place payback.

And and payment plan forgiveness for.

And as we just let you differ and.

So as those things roll through the system, it's kind of it's hard to do attribution on it.

Net.

It was down this year, which of course, we're focused on the our net promoter score really peak throughout the year, we get peaked and about July when we were doing all the shelter in place for pay backs. It came down a little bit towards the end of year and that not anything of any consequence here of significance. Glenn do you want to make a call.

And about the actual retention numbers.

Okay.

Yeah, I don't know if I can add a lot to what you said tax I think you hit it well I mean the.

And the drag on it and we know that the day.

Coming due of.

Special payment plans and had some drag on it and the competitive environment. We know that there are there.

And there were some.

Competitors out there that took some rate.

Down.

We also know that people facing financial hardship.

Either shops, some people even give up a car. So all of those things have have some play in it and as you said Tom attribution is.

And next to impossible on that but.

We're within a decent range of our long term retention and we're focused on it and of course, we want to retain every customer that we worked hard to get and the first place.

And I think if they if the underlying question there was our existing agents.

Forming well.

Well enough to keep retention levels up or somehow we've made a man or something like that.

Our answer there would be no.

We don't see any and there that says and existing agents are doing anything that they haven't done before for <unk>.

And if theyre not stepping up and helping their customers, even more and the pandemic I mean, they it really reached out in cash.

On the calls and shelter in place and the payment plans and that kind of stuff. So our agents who are doing a great job and I don't think there's anything structurally and there as it relates to this transition.

Says, we're not and I would point out that it's a huge part of agent compensation. So there.

Our interests are aligned with our interests, which is keeping our customers happy.

Okay. Thank you. That's helpful. Second question still on kind of the channel mix near term and longer term question and.

And the near term I guess this year you talked about a one point change and market share should we expect that to be kind of even throughout the year or more back half weighted in terms of the market shifts shifts and then longer term more interested and.

And maybe 10 years 10 years down the road Whats Allstate look like how does this mix look a third a third a third or something still weighted towards here and I think.

Thanks.

Well, we closed National General and January 4th.

So.

And that that in and of itself means we'll get that revenue for the entire year.

So you should expect to see.

Total auto premiums go up.

Throughout the year, we would expect that.

As we continue to rollout things and the Allstate brand.

We start to see some more growth in and that business overtime.

And but we don't really give it out and then even do it by quarter as much as you can in terms of the long term I'm like.

We'll take anybody we can get back.

We have we have one out of 10, and we still got nine out of 10 to go I'd be happy if all of them got a lot bigger and that's what we're setting up to do it. So we don't have a.

Percentage when you look at percentages from what customers want.

You have about it.

It's probably today, 25% of the customers really prefer self serve and that's a it's a range.

If you look at those who want an agent.

And over 50%.

And usually around 65% or about 60%.

And then in between you have people who are sort of they go with whatever is in front of them.

And there and different so we think there's plenty of opportunity and growth. Some of the shift you see in channels is really due to customers wanting it differently.

Not feeling like they need help.

To buy the product some of the shifts there just because direct companies had been advertising more so.

El loud enough and people come to you.

So we think what we should do is give people exactly what they want and give them choice.

And what they want in the with the person is really helped by it.

And they need and want less help on service and.

So the existing.

So we don't need to do as much local services, we do so we'll take as many people as we can get through any channel.

Okay, great. Thanks for all of that Tom for sure.

Thank you. Our next question comes from the line of Paul Newsome from Piper Sandler Your question. Please.

Paul you might have your phone on mute.

Sorry about that.

Thanks for taking the question and I was hoping you could.

Maybe help us understand a little bit more about how the investment portfolio will look after the life sale.

The P&C business kind of had a little bit of a different.

Our mix of assets and will that have any impact on the yield as well.

Great Paul Let me, let me give you a slight overview from a corporate standpoint, and John can talk about the specifics. So obviously the sale of Allstate life insurance company substantially reduces our investment portfolio as we exit our spread based business and.

And the blacks and entities, taking almost all of the assets that are used for asset liability match that business. They are not taking all of the performance based assets. So that increases the percentage relative to the overall portfolio, which also gets smaller.

And we looked at it obviously prior to the sale, we're comfortable with the risk and return of it and.

You will remember that we reduced our equity holdings in February this year by $4 billion not because of the hope that it lifestyle, but because we just didn't like the risk and return profile. There. So we do make changes up and down and this will still have the ability to go up and down even though this port.

Yes, Thanks, Tom and.

Thanks for the question for the.

And when you look at performance space too, it's part of a broader overall portfolio context. So that percentage will go up we look across risk and return factors across every security and every investment we hold and take it and its entirety. So as Tom mentioned, we have a lot of ways to compensate for additional risk.

We may take and one area.

And when you look at the performance space if you.

This is a long term holding for us we've looked at gradually growing that over multiple years and in some ways. This just accelerates that gradual path that we're on.

As we built this portfolio, we've always looked for the best partners and the best direct investments, we can across private equity real estate and other areas and.

And the assets that we'd be bringing on board are ones that were already very familiar with we already own them.

Obviously and very familiar so it accelerates.

Our path forward and a way that we're we're quite comfortable with.

And I.

I guess I'll just finish by saying that the the return on this is stood up quite well for even in what's been a volatile year. We've been looking back at what our returns have been over the last five years and 10 years and they are performance based assets.

Faired quite well relative to public markets and we think that it continues to be and integral part of the portfolio.

Johnson and let's take one last question and then we'll wrap up to keep people on time.

Certainly our final question for today, then comes from the line of Gary Ransom from Dowling and partners. Your question. Please.

Yes, good morning, I wanted to loop back on telematics you'd mentioned increased demand for the product.

A couple of questions. There did that make any material difference to the growth and new business that youre seeing it for it without roll forward you showed on slide eight and.

And then secondly, whether the difference between your mile by the mile product and the standard product whether it's the demand is different and with that question and I'm really just trying to think ahead is the by the mile product.

More of the way of the future.

Gary I mean make.

Couple of comments first I don't believe it's actually driven people to us.

So I think with our advertising when they get to us.

And then we talked to them about it so like Oh, that's interesting.

And what it enables us to do is give them a more accurate price, which protects them competitively. So the more accurate the price. They are they if someone takes them away from us.

And and we're really accurate by through a lower price and though we think lose money.

And and.

We won't lose people because we're over price for the risk. So it's really it'll drive more sustainability to growth as opposed to people, calling us and saying, Hey, I want it and that doesn't mean people don't see our ads and say Gee and prior to paying this much for insurance and I hired they drive.

Our costs, but I'm, not seeing a big well spring and people, saying 'cause it tends to be more in the sale itself.

In terms of a long term basis I think this is weighted that pricing will be done.

And.

Insurers for a longtime friend and trying to get more and more accurate and the individual risk, particularly in auto insurance and home insurance for that matter for telematics here, but it is.

Credit was a big move.

15, or 20 years ago, when we first got into the Ed using step by the credit file and.

And it's very powerful this is very powerful as powerful not so much and that part of the curve that being moderate risk people, but and really low risk or really high risk people. It's very effective. So I think it will lead to more sustainable growth through better retention, because we will have a really accurate and can.

Pettitte price.

Thanks. That's helpful. Can you also talk a little bit about how you might be using telematics on the claims side, whether that is developing or having much effect at this point.

Glenn do you want to take that.

Sure.

So we've got we've got some capability there that is I would I would call it developing.

And it's about accident notification and I think this is Tom talked about and being the wave of the future for pricing, which I totally agree with from it.

For the telematics I.

I think it's going to be the wave of the future. When you think about connected cars, you think about our devices and OLED ports or even the mobile there's there's accident detection through arity.

And through the mobile telematics.

So early notification emergency notification first notice of loss, taking our all areas and development and and I think will be a way for the future.

Other companies talking about going into a spec and raising some money we've worked extensively with that company.

We think our art.

Platform, our technology and the ability to utilize data will make us even better it settling claims and so it's not really related to telematics, but its really related digitization of the business, which is another way that we're trying to change both our business model and our culture.

And by that kind of growth.

Well. Thank you all for participating we are trying to build really transformational growth business models, it's more than a plan and it's really a way of life and.

And we expect to deliver increased growth and earn good returns, which will both create economic value just because we make more money and should lead to higher valuation multiples.

Thank you much I will talk to you next quarter.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Q4 2020 Allstate Corp Earnings Call

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